The shift in the demand for multifamily housing has shown an increase among higher income renters, as well as older and larger households. While rents have steadily increased and vacancy levels remain low. The apartment construction and renovations continue to be a lucrative investment.
Key findings in the Joint Center for Housing Studies of Harvard University explains in their annual report, “American’s Rental Housing 2020”.
With vacancy rates so low, rent gains continue to outrun general inflation. The Consumer Price Index for rent of primary residence was up 3.7 percent year over year in the third quarter of 2019, far outpacing the 1.1 percent increase in prices for all non-housing items. This brought the number of consecutive quarters of real rent growth to 29, the second-longest streak in records dating back to the 1940s. Indeed, real rents rose 27 percent over this seven-year period—four times faster than the prices of all other goods.
Despite slowing demand and the continued strength of new construction, rental markets remain extremely tight. Vacancy rates are at decades-long lows, pushing up rents far faster than incomes. Both the number and share of cost-burdened renters are again on the rise, especially among middle- income households. These conditions reflect fundamental market changes since the recession, including an influx of higher- income households, constraints on new supply, and substantial losses of low-cost rentals. With only limited federal support, state and local agencies are doing what they can to expand the affordable housing supply. What is needed, however, is a comprehensive response from all levels of government to address the scale of the nation’s rental affordability crisis.
After more than a decade of strong increases, renter household growth has moderated even as overall rentership rates remain high. In a dramatic shift, most of the recent growth in renters has been among households with high incomes rather than those with low incomes. The rising costs of homeownership have contributed to this trend, keeping many higher-income households in the rental market at ages when they might be expected to buy homes. Meanwhile, increasing numbers of young adults who cannot afford today’s high rents continue to live with their parents or double up with others.
Over the past decade, additions to the nation’s rental stock consisted primarily of large multifamily properties and single- family homes—units that are typically more expensive than those in small and mid-sized buildings. This shift has effectively shrunk the middle of the rental market. And despite the recent strength of multifamily construction, much of the rental stock is aging and in need of maintenance and updating. At the same time, rental deserts—providing only limited housing options for renter households— exist in a variety of communities from urban to rural, and the barriers to multifamily development in these locations remain formidable.
Rental markets remain tight, with low vacancy rates pushing up rents across most of the country. While new multifamily construction has soared to its highest levels in decades, most newly built units are high- end apartments in urban locations with asking rents that are well out of reach for middle- and lower-income households. Solid returns have kept investors in the apartment market, but strong demand for high-quality buildings has also served to drive up both property prices and rents.